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PF: Chapter 2

Chapter 2: Money Management Strategies and Skills

QuestionAnswer
Assets Everything you own, including liquid assets, real and personal property, and investments.
Debt payment ratio A financial ratio that measures the percentage of disposable income required to make debt payments.
Debt ratio Total debt divided by total assets.
Debts Everything you owe to others, including unpaid bills, credit card balances, car loans, student loans, and mortgages. Also known as liabilities
Fixed expenses Expenses that are a constant dollar amount each period.
Gross income Income before taxes and expenses.
Insolvency The inability to pay debts as they come due.
Liquid assets Cash and near-cash assets that can be easily converted to cash without loss of value.
Liquidity ratio A financial ratio that measures the ability to pay household expenses out of liquid assets in the absence of regular income.
Market value The price that something can be sold for today.
Mortgage debt service The total dollar amount of monthly mortgage principal, interest, property taxes, and homeowner’s insurance.
Mortgage debt service ratio The ratio of mortgage debt service to gross income.
Net worth The amount of wealth you would have left after paying all your outstanding debts.
Personal balance sheet A statement that details the value of what you own and what you owe to others to arrive at an estimate of your net worth.
Personal cash flow statement A summary of income and expenditures over a period of time.
Personal financial statement A statement that summarizes your financial information.
Savings ratio A financial ratio that measures the percentage of after-tax income going to savings.
Variable expenses Expenses that vary in amount from period to period.
Created by: 531742212